Gould Management Pty Ltd v Chief Commissioner of State Revenue
[2004] NSWADT 66
•04/05/2004
CITATION: Gould Management Pty Ltd -v- Chief Commissioner of State Revenue [2004] NSWADT 66 DIVISION: Revenue Division PARTIES: APPLICANT
Gould Management Pty Ltd as trustee for Gould Family Trust
RESPONDENT
Chief Commissioner of State RevenueFILE NUMBER: 036042 HEARING DATES: 22/03/2004 SUBMISSIONS CLOSED: 03/22/2004 DATE OF DECISION:
04/05/2004BEFORE: Block J - Judicial Member APPLICATION: Duties Act - dutiable value - GST MATTER FOR DECISION: Principal matter LEGISLATION CITED: A New Tax System (Goods and Services Tax) Act 1999
Duties Act 1997CASES CITED: Royal & Sun Alliance Insurance Australia Limited v Commissioner of State Revenue [2002] VSC 345
Royal & Sun Alliance Insurance Australia Limited v Commissioner of State Revenue [2003] VSCA 177
Ambiance (Arncliffe) Pty Limited v Chief Commissioner of State Revenue [2002] NSWADT 206
Roxborough v Rothmans of Pall Mall Australia Limited (2001) 76 ALJR 203REPRESENTATION: APPLICANT
G Cantelo, solicitor
RESPONDENT
I Young, barristerORDERS: The objection decision under review is affirmed.
REASONS FOR DECISION
1 The objection decision under review is the disallowance by the Respondent (by letter dated 21 October 2003) of an objection made by letter dated 21 July 2003. In its objection the Applicant asserted that, to the extent of $15,575 duty had been overpaid in respect of a contract of sale dated 7 August 2001 (“contract”) between Cryton Investments (no 4) Pty Ltd as vendor (and referred to in this decision as the “vendor”) and the Applicant as purchaser (and sometimes referred to in this decision as the “purchaser”). The letter by the Respondent to the Applicant’s solicitor sets out that the Respondent was prepared to treat the objection as valid notwithstanding that it was made long after expiry of the relevant time period.
2 The Tribunal had before it the documents lodged pursuant to section 58 of the Administrative Decisions Tribunal Act.
3 The contract appears on the face of it to have been stamped with duty in amounts of $43,240 and $15,775 on 17 October 2001 and 13 December 2001 respectively. Mr Young during the course of his oral submissions indicated that the second amount, on the basis that it was a payment of duty on the GST amount, appeared to be considerably in excess of an amount equal to duty at the top rate. The price under the contract was $1,050,000; the GST amount at 10% is $105,000; duty on the latter amount at the maximum rate would be $5,775 and not $15,775. Mr. Cantelo later said that the marking of “1” on the photocopy of the contract in relation to the second payment of duty is in fact part of the dollar sign; he had also read the duty amount incorrectly which accounts for the fact that the objection is similarly incorrect. The duty on the GST amount is thus $5,775 and the claim was reduced accordingly.
The contract contains a note at the foot of the first page reading as follows: “Note; The price excludes goods and services tax (if any) payable by the Vendor; See Special Condition 19”
The second page of the contract, under the head of GST information noted that the sale was a taxable supply pursuant to section 9-5 and 195-1 of A New Tax System (Goods and Services Tax) Act 1999 (“GST Act”).
Clause 10 of the contract in turn reads as follows:
“19. GST
(a) The purchase price is exclusive of GST and the Purchaser hereby agrees to pay to the Vendor on completion, in addition to the purchase price, an amount of 10% of the price and the Vendor will on completion give the Purchaser a tax invoice in respect of the GST payable under this contract.
(b) This Special Condition 19 has effect notwithstanding the provisions of clause 13 hereof”
4 At a directions hearing in December 2003 directions were given by consent between the parties and requiring the Applicant to file its submissions by 20 January 2004, requiring the Respondent to file its submissions by 20 February 2004, and allowing the Applicant a right of reply by 19 March 2004. At that directions hearing and noting that this case related related to the question of duty on GST I suggested to Mr. Cantelo that he read a paper entitled “Interaction of Stamp Duty, GST, and CGT- Update” by Mr. Peter Green of Mallesons, and presented by him at the 2002 Annual Stamp Duty symposium. That paper was given following the decision by Byrne J in the Victorian Supreme Court in Royal & Sun Alliance Insurance Australia Limited v Commissioner of State Revenue [2002] VSC 345 and my decision in Ambiance (Arncliffe) Pty Limited v Chief Commissioner of State Revenue [2002] NSWADT 206
5 The Applicant did not file any submissions; on Friday 20 March 2004 the Tribunal received a fax from Mr. Cantelo seeking a vacation of the hearing on 22 March 2004 reading as follows:
6 The Respondent who had briefed counsel for the hearing refused to agree to the hearing being vacated. At the commencement of the hearing the Applicant delivered its submissions dated 22 March 2004; Mr.Young sought and received an adjournment of 30 minutes in order to consider the Applicant’s submissions.
“I wish to vacate this hearing.
My reason is that since our 2 December ADT directions, my workload for December 2003, and January, February and March 2004 for my clients, (including Gould Management Pty Limited, the applicant in this case) increased with many substantial new legal projects, so much so that I have been unable to even start to prepare my submissions.
At our 2 December 2003 ADT directions, I agree to the then timetable anticipating, as had been normal for my practice until then, that December 2003, and January and February 2004 would be my quietest time in the year when in fact, those have been my busiest 3 months since I started in my own private practice in 1994.
I had been expecting to prepare submissions this week ready for the hearing but have been unable to prepare them.
Those projects are now completed today and I am now able to direct my time to this case.
In addition to having this vacated, I am asking for a direction that I be permitted to lodge my submissions by Friday, 2 April 2004 with a replacement hearing date any time after that, subject obviously to the NSW Crown Solicitor’s Office agreement.
I apologise for my delay and short notice for this request.”
7 The starting point is perhaps my decision in Ambiance. That decision was given at a time prior to the hearing in Victoria of the appeal against the judgment of Byrne J in Royal & Sun at first instance. Royal & Sun, put in very brief terms, was concerned with renewals of insurance and where in respect of certain premiums, the insurer specified the premium and GST separately. Byrne J held that under the Victorian statute the GST portion separately specified did not attract duty.
8 It is against that background that I issued my decision in Ambiance. In Ambiance the contract of sale (the “Ambiance contract”) did not specify duty separately and so that there was one single amount in respect of purchase consideration. In referring to Royal & Sun at first instance, I included clauses 55 to 62 of the judgment by Byrne J, but concluded that extract with a note reading; “The Tribunal notes with respect to His Honour and to clause 60 that it is not sure that it is “but a small step”.
9 The judgment by Byrne J in Royal & Sun at first instance related to the Stamps Act 1958 (the” Victorian act”) and was moreover concerned with insurance premiums rather than the purchase of real property. Nevertheless I felt that I was obliged, having regard to that decision (a decision of a superior court and binding on me) and also Roxborough v Rothmans Pall Mall Australia Ltd, 92001) 76 ALJR 203, cited in both Royal & Sun at first instance and Ambiance, to take the view that there might be a distinction to be drawn between a contract where the price and the GST component are separately specified and a contract where the price is inclusive. I therefore, in affirming the objection decision under review in Ambiance, noted that it was possible that the separate specification of the price and the duty might produce a different result.
10 The decisions in Royal & Sun (at first instance) and in Ambiance were dealt with at length in the paper by Mr. Green (“the Green paper”) referred to earlier in these reasons. As regards Royal & Sun at first instance Mr. Green wrote (at pages 9 to 12):
11 And in relation to Ambiance Mr. Green said at pages 12 and following:
The Royal & Sun Alliance Case
The issue for consideration was whether the Victorian stamp duty payable by an insurance company by return under the Stamps Act should be calculated by reference to amounts received by the insurance company from the insured which were separately quantified and specified in renewal notices as “goods & services tax”. Under the Stamps Act at the time the insurance company was required to calculate the duty payable by reference to “gross premium” which were expressed in the legislation to include commissions or any fire service levies paid or payable in connection with insurance but to exclude an amount received by the insurance company from the insured on account of stamp duty. In an appeal to Byrne J of the Victorian Supreme Court the insurance company mounted a number of arguments in support of a conclusion that the amounts designated in renewal notices and assumed to be designated in invoices as “goods and services tax” should not be included in the duty calculation. Ultimately the Court concluded that such amounts should be excluded from the duty calculation but in responding to the various arguments the Court made a number of preliminary findings and expressed a number of preliminary conclusions which are significant for present purposes:-
After taking into account expert evidence as to the meaning of the words “premium” and “gross premium” within the insurance industry, Byrne J concluded that there was no accepted industry meaning of the word “premium”, nor “gross premiums”. Accordingly, since the expression “ gross premiums” was not a term of art within the industry, Byrne J was unable to find that the term of art excluded government transaction charges such as GST.
Byrne J also refused to accept that within the ordinary meaning of the words “gross premiums” government charges such as GST would be excluded. In the course of reaching this conclusion Byrne J expressed the view that within the meaning in ordinary popular usage “a premium is the price paid for insurance cover” (see para 31 of the judgement). In reaching this conclusion Byrne J undertook a detailed examination of the history of the insurance duty provisions in the stamp duties legislation in Victoria. This detailed examination of the history results in a number of findings (see paras 43-49 of the judgement) which, according to the judge, provided a basis for his rejection of the proposition as a matter of construction that government transaction charges would not be included within the expression “gross premiums”.
Having regard to the terms of the insurance policies in evidence, it was concluded that the consideration for the insurance cover comprised, not only the amount separately designated as “premium” but also the various charges separately designated including the GST. The court contrasted the terms of the policies under consideration from those considered by the Western Australian Supreme Court in the case of Commissioner of State Taxation (WA) v Wesfarmers Insurance Ltd 89 ATC 4806 which lead Wallace J to conclude in that case that the consideration for the insurance cover comprised only the amount designated as premium.
Having concluded that government transaction charges, such as GST, comprised part of the consideration for the insurance cover, Byrne J moved to consider whether “all components of this consideration should be characterised as premiums (see para 54 of the judgement). One might be forgiven for thinking that the judge had already addressed this issue in Paras 43-49 of the judgement after his review of the history of the applicable provisions. Nonetheless, the judge appears to proceed to consider the same issue not from a legislative historical perspective, but in the light of the decision of the Full Federal Court in the Century Batteries Case; of the decision of the High Court in the Roxborough and Rothmans Case; and of the decision of the High Court in the Royal Insurance Case.
After acknowledging that those decisions were cases dealing with restitution and associated principles the judge accepted that the reasoning in the cases pointed strongly in support of an argument that a tax component which under the contractual documents may be dissected should not be regarded as part of the consideration received for the insurance cover. Having acknowledged that the cases pointed strongly in support of such an argument (see paras 60 and 61 of the judgement), Byrne J notes that the question remains essentially a question of construing the relevant provision in the Stamps Act and its application to the facts of the case. Seemingly in disregard of all of the conclusions earlier expressed in relation to the construction point but guided by the reasoning in the cases referred to, Byrne J concludes “that the separate designation of the GST component of the amount payable by the insured for the insurance cover has the consequence that this component, when paid, is not part of the gross premiums received by the insurer”. This conclusion is justified on the basis that:
*it reflects the terms of the contract between the parties as disclosed in the renewal advices and the intent and spirit of the Stamps Act; and
*it is not inconsistent with the terminology of the applicable provision in the Stamps Act which was enacted when no GST was contemplated.
It is submitted with due respect that there are a number of significant problems with the analysis and reasoning of Byrne J:-
As appears from the judgements of all members of the High Court in the Roxborough and Rothmans Case; from the historical review of the earlier cases undertaken by Gummow J in the Roxborough and Rothmans Case and from observations made by the High Court in the David Securities Case, a claim for moneys had and received or for restitution based upon a failure of consideration will only succeed if there has been a total failure of consideration or a failure of a severable part of the consideration. With the exception of Kirby J who described the proposition as “surreal”, all members of the High Court in Roxborough v Rothmans concluded that the consideration on the part of the tobacco wholesaler was severable. As previously noted, the principal basis for this conclusion was not that the component referable to the “tobacco licence fee” was separately stated but, rather, the scheme of the legislation which produced a direct benefit flowing to the tobacco retailer from the payment of the tobacco licence fee component to the NSW Revenue. The significance of this factor emerges from paras 16 and 17 of the joint judgement: from para 109 of the judgement of Gummow J; and from para 195 of the judgement of Callinan J. It was the direct interest which the retailer had in the wholesaler’s payment of the tobacco licence fee to the NSW Revenue which supports the conclusion that the identified wholesale price comprised the consideration for the acquisition of title to the tobacco products and the separately identified tobacco licence fee was consideration for the undertaking on the part of the wholesaler to pay that amount to the NSW Revenue. This explanation emerges clearly from the dissenting judgement of Gyles J endorsed by Callinan J and is implicit in the conclusions expressed in the joint judgement and that of Gummow J. The proposition also emerges in the course of its rejection in the judgement of Kirby J (see paras 168 and 169 of his judgement).
Unlike the legislation imposing the tobacco licence fee, the GST Act does not confer a benefit upon the recipient of a supply (eg; a purchaser of land or a person taking out an insurance policy) by reference to the payment by the supplier (eg; the seller of land or an insurance company providing an insurance policy) of GST. Ignoring irrelevant qualifications, in essence the scheme of the GST Act is that a supplier who makes a taxable supply is liable to pay GST calculated by reference to the consideration received for the supply. There is no statutory right of reimbursement on account of that GST. However, the legislation contemplates that a supplier may well require the recipients of the supply by contract to reimburse it on account of the GST. The recipient of the supply will be entitled to an input tax credit if among other things the supplier registered or required to be registered for GST provided that the supply acquired by the recipient does not have a disqualifying relationship with input taxed supplies made by the recipient.
The amount of the input tax credit is equal to the GST payable by the supplier (see section 11-25 of the GST Act). If the input tax credit is available, it would offset the GST reimbursement (if any) payable by the recipient to the supplier. However, there are two important things to note. First, the entitlement of the recipient to an input tax credit is not dependent upon the supplier having paid GST. The amount of that credit is calculated as being equal to the GST “payable” (and irrespective of whether it is actually paid) on the supply. Secondly, the entitlement of the recipient to an input tax credit is not dependent upon the recipient having reimbursed the supplier on account of the supplier’s GST. Given these significant legislative differences in the scheme of the tax, it is far more difficult to conclude in relation to GST that the GST gross-up is paid by the recipient to the supplier in consideration of the supplier paying the amount to the ATO. The benefit to the recipient of an input tax credit is not (unlike the tobacco licence legislation arrangements) dependent upon the supplier paying GST to the ATO and nor is the benefit of the input tax credit dependent upon the recipient reimbursing the supplier on account of GST.
Byrne J expressly distinguished the insurance policies under consideration in the case before him from those considered in the Wesfarmers Case on the basis that the policies in the Wesfarmers Case expressly acknowledged that the separately identified “premium” comprised the consideration for the insurance cover whereas the policies under consideration by Byrne J led to the conclusion that the premium plus the separately identified transaction charges all comprised consideration for the insurance cover. In light of that finding, it is difficult to see how the reasoning of the High Court in the Roxborough v Rothmans Case should be considered by Byrne J to be compelling since it is an integral part of the reasoning of five of the six judges that the consideration for the acquisition of the tobacco products was the separately identified wholesale price and that the undertaking of the wholesaler to pay the tobacco licence fee component to the NSW Revenue comprised consideration for the separately identified component.
Although it is entirely appropriate for Byrne J to be influenced by relevant judgements in other cases when construing the expression “gross premiums” for the purposes of the Stamps Act, no attempt seems to have been made by Byrne J to reconcile the guidance provided by those judgements with the seemingly contrary indications provided by his analysis of the ordinary meaning of the words and the legislative history of the provisions. The clear inconsistency between the conclusions reached on the question of construction by reference to the ordinary meaning of the words and the legislative history and that reached in the light of cases dealing with questions of restitution is perplexing.
12 I attended the symposium at which Mr. Green’s paper was presented; I agreed with the views expressed; to the extent that his comment on Ambiance is critical of it that criticism is justified.
The Tribunal rejected the taxpayer’s claim. The essential basis for the Tribunal’s conclusion was that the purchase price under the contract was one indivisible sum which was not severable into components including a separate GST component. The Tribunal distinguished the decision in Roxborough v Rothmans; Royal & Sun Alliance and East Fifty-Fourth Street on the facts. It is submitted with respect that these essential conclusions are correct. However, it is also submitted that the detailed reasoning in rebuttal of the taxpayers arguments and as a basis for distinguishing the other decisions is in some respects debateable. This observation is not mere pedantry but reflects a concern as to the implications of the Tribunal’s decision. One of the significant issues is whether a different outcome would have been produced if the contract had been restructured such that the purchaser had agreed to pay a stipulated purchase price and had, in addition, agreed to reimburse the vendor for a separately specified amount on account of GST. The practical significance of this issue for taxpayers and advisers is discussed in some detail below. However, the initial question is whether or not such an implication should be drawn from the reasoning of the Tribunal.
In distinguishing the other decisions upon which the taxpayer had relied, the Tribunal had the following to say at para 26.
“It is in my view important to remember that in each of Roxborough and Royal and Sun the relevant consideration was expressed in such manner as to reflect the tax or duty separately. And Learned Hand made the same assumption in his dissenting judgement in 123 East Fifty-Fourth Street. Moreover, and apart from any other considerations, the tax was in each case specifically passed on. In this case, and ex facie the contracts, it was not; nor was it expressed separately and the Applicant did not agree to pay the GST. The fact that it agreed to a price, in circumstances where it considered that it could take into account the fact that it would be entitled to a corresponding input credit did not alter this fundamental fact.”
It is submitted that, as stated, those grounds of distinction are questionable for the following reasons:
As previously noted in the discussion of the Roxborough v Rothmans Case and the Royal & Sun Alliance Case, the basis for severing consideration as enunciated by the High Court in the Roxborough v Rothmans Case and in the Davids Securities Case is not dependent upon an express contractual separation. Thus, in the David Securities Case, the High Court accepted that consideration could be relevantly dissected in order to determine whether there had been a relevant failure of consideration “in circumstances where both parties have impliedly acknowledged that the consideration can be broken up or apportioned in this way” (see 175 CLR at p383.) In the case of Rugg v Minett relied upon by Viscount Simon in the Fibrosa Spolka Case to which Callinan J refers in the Roxborough v Rothmans Case, it was clear that there had been no express segregation of the purchase price but that the facts enabled an apportionment to be made. For the reasons previously discussed, it has been submitted that 5 of the 6 judges in the Roxborough v Rothmans Case accepted that there had been a partial failure of consideration for reasons which did not depend upon the separate expression of the tobacco licence fee component.
Clause 13 of the contract under consideration by the Tribunal does appear to meet the test espoused by the High Court in the David Securities Case when discussing the issue of a failure of consideration viz; both parties have impliedly acknowledged that the consideration can be broken up or apportioned in this way. The requirement that the vendor must refund to the purchaser on completion an amount equal to the GST if the sale turns out not to be a taxable supply provides, at least, an implied acknowledgment that 1/11th of the purchase price relates solely to the GST payable by the vendor. Indeed, there are reasonable grounds for the taxpayer’s apparent argument that this provision amounts to an express acknowledgement. Furthermore, if the contract contained a provision corresponding with clause 13.8 of the standard form contract, the implication is even clearer.
A more substantial basis for distinguishing the decision in Roxborough v Rothmans than the express segregation of a tax component lies in the differences between the legislative schemes for the imposition of the tobacco licence fee and the imposition of GST previously discussed. In essence, the tobacco wholesaler had a direct financial interest in the payment by the wholesaler to the NSW Revenue of the amount identified as the tobacco licence fee. By contrast, the purchaser under the contract for sale did not have any interest in the payment by the vendor to the ATO of the GST component since the entitlement of the purchaser to an input tax credit was not dependent upon that payment.
In the Royal & Sun Alliance Case, Byrne J expressed the unqualified conclusion that the payment of the GST and other government charges comprised “part of the consideration for the insurance cover” (see para 53 of the judgement). The basis for Byrne J excluding the GST component from the duty base was that the GST component did not comprise part of the sub-set of consideration being “premiums” or “gross premiums”. The argument of the taxpayer to the Tribunal was that the GST component did not form part of the consideration for the purchase. Thus, an additional and less contentious basis for the Tribunal to have distinguished the decision of Byrne J would have been a proposition that the decision of Byrne J turned upon an entirely separate issue (ie; whether the GST component comprised a specific sub-set of consideration being a premium).
The grounds of distinction as stated by the Tribunal do leave open the possibility that the conclusion would have differed if there had been a separate stipulation of a quantified GST component. It is submitted that this is an unfortunate outcome since it does not reflect the substantial basis of the decision by the Tribunal nor the reasoning of the High Court in the Roxborough v Rothmans Case.
Another aspect of the reasoning of the Tribunal worthy of note relates to the arguments raised by the taxpayer concerning the issuing of a GST tax invoice by the vendor and the purchaser obtaining a “refund” of GST. The taxpayer had argued, in part, that the GST component of the purchase price (assuming that such a component was capable of identification) comprised consideration for the issuing of a GST tax invoice by the vendor and not for the sale of the property (see paras 16 and 20 of the Tribunal decision). This argument echoes the reasoning of 5 of the 6 judges in the Roxborough v Rothmans Case and the dissenting judgement of Gyles J in the same case to the effect that the licence fee component comprised consideration for the undertaking on the part of the wholesaler to pay the amount to the NSW Revenue. As the Tribunal noted in response to this argument, any such consideration would have been illusory because the vendor would have been required to issue a tax invoice pursuant to the operation of the GST Act (see section 29-70).
As to the argument that the GST component (assuming that such a component could be identified) should be excluded from dutiable consideration on the basis that the purchaser would be entitled to a “refund” of GST, the Tribunal notes that the input tax credit mechanism does not give rise to a refund of GST. As previously noted, the entitlement of the purchaser to an input tax credit would arise irrespective of whether or not the purchaser had included a GST component in the purchase price or reimbursed the vendor on account of GST. Although the Tribunal relied upon this argument as a rebuttable of the taxpayer’s argument, the Tribunal did not develop this argument as a basis for distinguishing the decision of the High Court in the Roxborough v Rothmans Case.
13 The Appeal Court of the Supreme Court of Victoria reversed the judgment of Byrne J; I include in respect of that judgment clauses 21, 22, 31, 32, 41, 42, and 56 (all taken from the judgment of the court delivered by Ormiston JA) and clause 60 (taken from the brief concurring judgment of Chernov JA) as follows:
Decision of trial judge
19. The main issue before Byrne, J. was the meaning to be given to the words "premiums" and "gross premiums" in the relevant sub-division having regard to the definition in s.98(1) of the Act and the context in which those words appear therein and, in particular, whether an amount representing the GST component charged on the grant of insurance cover should properly be treated as included in the value of premiums for the purposes of the Act. His Honour rejected two arguments put forward by the insurer as to the proper interpretation of those words. In the first place it was contended that the word "premium" and "gross premium" had what was described as a trade meaning within the general insurance industry which in substance confined premiums to the amounts which insurers charged for accepting risk under policies but excluded government charges levied on insurance transactions that insurers were required to pay to government. It was thus said that stamp duty should only be levied or charged on the net amount retained or applied by an insurer for its own benefit from the premium and that tax and duty charges should be excluded. There was considerable evidence led on these matters, as I have noted, but the judge found that that evidence was sufficiently inconsistent for him to conclude that there was "no accepted industry meaning" for the words "premiums" or "gross premiums".
20. The insurer's second argument in the Trial Division was that, in any event, on the proper construction of the terms "premiums" and "gross premiums" as appearing in the Act, they should be interpreted as excluding those elements of the premium representing taxes and premiums, and GST in particular, especially having regard to "accepted terminology and usage in [the insurance] industry". Byrne, J. carefully examined the legislative history of sections imposing stamp duties on insurers since 1879 and the language of the Act as it stood immediately prior to its repeal in the year 2000. Again he found no specific benefit in looking at practice and usages within the industry for this purpose and concluded that on the plain meaning of the terms in question, "premiums" should properly be construed as the price payable for the issue or renewal of an insurance policy or cover without any deduction for the GST component.
21. Thirdly, the insurer made a submission based upon its having in fact charged insured parties separate amounts for GST. As has already been noted, there was by no means consistency in the documents produced by the insurer but, to the extent that some of them at least appeared to divide the sum sought by way of consideration for the grant or renewal of insurance cover, his Honour concluded that the division of the price charged in this way by the insurer was sufficient to entitle him to reach the conclusion that the other sums stated, in particular that in respect of GST, ought not in the circumstances to be considered as forming part of either premiums or gross premiums. Notwithstanding that the judge found that, if an insured paid only the premium component and not government charges such as GST, the insurer might refuse cover, he nevertheless held that, because the GST component of the amount payable was separately designated, it was not part of the gross premiums received by the insurer and therefore was not subject to stamp duty. For this purpose his Honour relied upon two decisions in particular, Commissioner of Taxation v. Century Yuasa Batteries Pty. Ltd.[22] and Roxborough v. Rothmans of Pall Mall Australia Ltd.[23] It is sufficient to say that in the first the question for the Full Federal Court was whether a payment or part thereof was "an amount in the nature" of interest, where one component in a payment was a sum equal to withholding tax which the borrower was obliged to deduct for tax purposes. Effectively the exercise in characterisation necessarily had to look at the component parts of payments received by a non-resident lender in order to ascertain income tax liability. Similarly, the decision in Roxborough related to a claim in restitution arising out of the unconstitutional imposition of a licence fee on suppliers of tobacco products and the issue was as to what extent the payer of the licence fee could seek repayment on the ground of unjust enrichment. The High Court, perhaps not unsurprisingly, held that an argument that the price paid was a composite figure for which there was no total failure of consideration should not avail the person holding the relevant funds, so that the component representing the illegal licence fee could be recovered.
22. Although the insurer in the present case was able to persuade the learned judge that these decisions were analogous and thus could be applied so as to sever the GST component from the balance of the premiums, it changed its stance in this Court and thought better of seeking to persuade us that that critical part of his Honour's reasoning, so far as the insurer was concerned, was correct and, apart from making some passing reference to the reasoning in Century Yuasa Batteries, it did not seek to uphold the judgment below on that ground. I shall refrain from commenting on the propriety of those tactics and assume, because of the complexity of those cases, that the advancing of the argument was a mere error of judgment. The consequence, however, is that, in order to uphold the judgment of Byrne, J., the respondent insurer found itself in the position of having to overturn his reasoning on the first two principal issues, serving a notice of contention to that end. I should add that there is a further issue relating to the remission of penalty. Notwithstanding that the judge found in favour of the insurer, he expressed himself tentatively in favour of the Commissioner, if there had been a failure to make a full return, so that on this appeal the respondent seeks, if it be unsuccessful, to reverse those tentative conclusions and to have the penalty remitted or reduced to 5 per cent of the unpaid duty. (Emphasis added)
31. In so far as the insurer purported to claim stamp duty, fire services levy and GST as such from the insured, it had no right to do so in the sense that it was the only person upon whom a legal liability rested to pay the duty, the levy or the tax (as the case may be): see, as to the duty, s.97(2). Nobody can lawfully claim, without specific authorisation, to be paid a tax or impost which does not rest on the person upon whom the demand is made. With great respect, it is wrong to suggest, as Wallace, J. did in Wesfarmers[38], that the insurer, in separating out the government charges, required the insured to pay those charges, including the stamp duty "so as to enable it to discharge its statutory obligation". Perhaps an insurance contract may contain a term whereby the insured should indemnify the insurer against certain liabilities if and when they be paid, but that was not the case in Wesfarmers or in the present case. There has merely been a division of the consideration into a number of parts, so that all the parts made up the "consideration" which the insurer demanded should be paid to it, and not to any other party, as the price for granting cover to the insured. So in both Wesfarmers and the present case the insurer had no legal right to claim from the insured payment of government taxes or charges, the burden of which rested solely on the insurer, nor was there any relevant exception, at least in the present case. So far as stamp duty was concerned, there were explicit powers given in this state by s.98(2) of the Act to "set out as a separate part of the amount required to be paid ... an amount designated as stamp duty", or under s.98(2)(b) "to include [such an amount] in the amount required to be paid". That was a special concession, largely to relieve insurers of the opprobrium which might fall upon them if the insurer's obligation to pay stamp duty was not properly acknowledged. But it was only intended as a means of making clear how much stamp duty in fact would be borne by the insurer pursuant to the Act and neither that provision, nor any other provision, placed any further legal obligation on the insurer to account for such sums or in any way separately to retain them so that they might otherwise be characterised as not forming any part of the premium payable in respect of cover granted by the insurer.
32. More importantly, neither in the Act nor in the GST Acts was there any provision which placed a separate burden on the insured or made provision for the insurer to account for GST received or to treat it separately in its books of account, such as to deny its character as part of the consideration for the grant of insurance cover. There was again a concession to those seeking payment for goods and services inasmuch as they were entitled to designate separately the amount of GST directly incurred by reason of the provision of such goods and services, but that in no way changed the legal obligations of the parties to such transactions. (Emphasis added)
40. The second general matter which to my way of thinking shows a misconception in the minds of the insurer's expert witnesses relates to the basis upon which they concluded that the term "premium" was "the amount which an insured charges for accepting the risk under the policy, excluding government charges ...", as was stated by Mr Buchanan [at A10]. The vice in the contention can be seen in the words immediately following that conclusion, which infected almost the whole of his report and supplementary report, and which proceeded to qualify the expression "government charges" in these terms: "which the insurer is required to remit to the taxation authority, such a stamp duty and GST" (emphasis added). It is in the concept of there being an obligation "to remit" that I see a fundamental error which has nothing to do with the witness's undoubted expertise in the insurance industry. The witness proceeded to explain the so-called requirement by immediately embarking on a description of then current Australian accounting standards and in particular standards AASB1023 and AAS26, as well as certain proposed international standards. He said that a distinction was drawn between levies and charges "levied upon the insurer, which it may, but need not, pass on to the insured", which is required to be "included in premium revenue", and, on the other hand, stamp duty, and therefore the GST, levied on the insurance contract and calculated on the sum insured, the premium or numbers of policies, "which the insurer is required to collect and pass on to the taxing authority" which is not included in premium revenue. Again to be fair to the witness, the source of this opinion lies directly in those accounting standards. Paragraph 4.1.2, dealing with insurance premiums and certain government levies and charges, such as licence fees and fire brigade levies, states blandly:
So the standard says that the amounts so collected are to be treated as the insurer's revenue. The accounting standard in para.4.1.3 then draws a contrast with stamp duties in particular:
"Such levies and charges are expenses of the insurer, rather than government charges directly upon those insured. The insurer is not acting simply as a collector of these levies and charges. Although not compelled to collect these amounts from those insured, the insurer is entitled to include in premiums an amount to cover the estimated amount of the levies and charges. The insurer is usually responsible for paying the levies and charges at a later date."
14 I have deliberately included substantial extracts from the Appeal Court judgment in Royal & Sun and in addition extracts from the Green paper in order to indicate that it is my view that this particular issue has been dealt with. And the fact that the Appeal Court judgment related in its terms to the Victorian ACT does not make any difference.
41. From what I have said already those are clearly legal misconceptions and very unfortunate misconceptions so far as the insurance industry is concerned, however correct they may be as a matter of accounting practice. Taking first paragraph 4.1.3 it is simply not true that stamp duty was charged on individual insurance policies in this state, except to the extent that s.110A provided for duty on policies granted by foreign insurers. Though it is correct to say that by s.98(2) the insurer was permitted to identify the stamp duty on policy documents such as premium renewal notices, it was not the law that the insurer merely collected the amount of duty so as to pass it on to the government. It was not "a tax collected on behalf of a third party", and it is irrelevant that there was no choice whether or not to collect the duty from the insured, for the fact of the matter is that in Victoria (and I believe in most other states) the obligation to pay stamp duty rested on the insurer. To what extent insurers chose to build that compulsory charge into its premiums was a matter for each insurer (subject to s.98(2)), although doubtless they liked to make clear[41] that they had calculated (as most insurers did) an appropriate premium and then added their burden for stamp duty on top to produce the actual premium to be paid. Likewise the contrast in paragraph 4.1.2 with charges for which the insurer is "acting simply as a collector" is quite invalid as a matter of legal analysis and in particular, so far as those accounting standards were concerned, inasmuch as the law in this state imposed the obligation to pay stamp duty on insurers.
"In most states, stamp duty is charged on individual insurance policies and is separately identified by insurers on policy documents. The insurer normally is required to collect and pass on to the government an equivalent amount. Because such stamp duty is a tax collected on behalf of a third party and there is no choice on the part of the insurer but to collect the duty from the insured, it is not revenue of the insurer."
56. It follows that neither the word "premium" nor the expression "gross premiums" should be construed so as to exclude the component said to be included by way of GST, either as calculated by the insurer or as calculable by it in respect of the provision of services by way of the grant or renewal of insurance policies. Both the word and the expression should thus be treated as comprehending the whole of the sum received or receivable from an insured by the insurer, for the purpose of calculating the amount on which stamp duty was to be assessed at the relevant time. A separate designation on certain documents of the GST payable by the insurer was not relevant to determining what premium (or gross premium) was paid but, in any event, whether separately designated or not, it should not have been deducted from the amount returned by the insurer for the purpose of the assessments here in question. The Commissioner's appeal should therefore be allowed and the orders of the learned judge made on 6 September 2002 setting aside the "estimated" assessment should themselves be set aside. There is therefore no reason to remit the question of stamp duty to the Commissioner for further assessment according to law, as directed by the judge's second order. (Emphasis added)
60. I have had the advantage of reading in draft the reasons of Ormiston, J.A. in this case. I agree that, for the reasons given by his Honour, the word "premium" and the term "gross premium" in ss.96 to 98 of the Stamp Duty Act 1958 ("the Act") should be given their ordinary or conventional meaning so as to include, inter alia, the goods and services tax applicable to the amount charged by the respondent for the insurance cover provided by it under the policies and renewals examined by his Honour. I also agree that the legal liability to pay such goods and services tax rests on the respondent notwithstanding that it has sought to recoup it from the insured as part of its total charge for the provision of cover. Thus, in this case, the whole sum received or receivable by the respondent was liable to stamp duty. It follows that the Commissioner's appeal should be allowed and disposed of as his Honour proposes. This includes remitting the question of penalty to the Commissioner to be dealt with having regard to the circumstances of this case. (Emphasis added)
15 Mr Young referred in some detail to the legislative scheme under the GST Act and in particular the fact that the vendor and the purchaser are treated separately in relation to a contract of sale. Where the vendor makes a taxable supply (and see section 9-5) he is obliged under section 9-40 to pay the GST which under section 9-70 is 10% of the taxable supply. The purchaser is entitled to an input credit if inter alia the supply was a taxable supply and the purchaser is registered. Under section 11-20 the purchaser is entitled to an input credit equal to the GST payable in respect of the supply and would be entitled to it regardless of whether or not the GST due by the vendor was in fact paid.
16 In this matter the contract of sale makes it clear that the sale was a taxable supply. Under special condition 19 the purchaser agreed to pay an additional amount equal to 10% of the price and the vendor agreed to provide a tax invoice. (The vendor would in any event be obliged to do so). It will be seen then that the contract differs from the contract in Ambiance only in that the former specifies the price as exclusive of the GST amount while in Ambiance the price is inclusive. But it is clear that the effect is exactly the same. The purchaser under the contract was obliged to pay the price and a further amount equal to 10% of the price, and the supply being a taxable supply the vendor was obliged to produce an invoice.
17 As I have indicated Roxborough was referred to in both Royal & Sun at first instance and Ambiance. It is not in fact a tax or revenue case at all. The license duty was imposed on both wholesalers and retailers; wholesalers as a precondition of supply required retailers to pay the duty. When the duty was declared unconstitutional the retailers sought refunds of the duty on an unjust enrichment basis. It is important to remember that the duty exacted by wholesalers and paid by retailers was the same duty. Under the GST Act the parties are treated as separate entities and so that the purchaser where appropriate receives an input credit whether or not the vendor discharges his obligation. And the vendor must pay the duty regardless of whether or not the purchaser is entitled to an input credit. As regards Roxborough the Respondent said in his written submissions that:
18 Section 21 (1) of the Duties Act provides:
“20 In Roxborough a periodic licence fee was imposed on wholesalers and retailers of tobacco products. The appellants in that case were licensed retailers who had purchased tobacco from the respondent, a licensed wholesaler. The purchase price comprised and was expressly apportioned in invoices between the wholesale price of the product sold and the amounts in respect of the tobacco licence fee. Subsequently, the High Court declared a tobacco licence fee legislation to be constitutionally invalid as the licence fee was, in substance, a duty of excise. By the time the tax was declared unconstitutional the appellant’s had already paid amounts to the respondent in anticipation of licence fees for products supplied. The appellants brought an action seeking repayment of the component purchase price that represented the unconstitutional licence fee. The decision of the Court was to the effect that the component of the purchase price which represented the tobacco licence fee separate, distinct and severable from the remainder of the consideration for which the purchase price was paid. Thus, the invalid licence fee was nearly “ a distinct and severable part of the consideration for the total net payments made by the appellants to the respondent ”: see page 342 paragraph 24 per Gleeson CJ, Gaudron and Hayne JJ.
21 Accordingly, it follows by analogy, from the decision in Roxborough that the payment of the GST by the applicant or, alternatively, the promise by the applicant to make the additional payment of 10% of the purchase price, was merely a discrete, identifiable component of the total or overall consideration provided by the applicant that moved the conveyance.”
19 It cannot be doubted that the Applicant was obliged in order to obtain transfer to pay the price and also an additional amount equal to 10% of the price. It is this aggregate consideration which moved the transaction; had the purchaser not paid the additional 10% he would not have obtained the property. The consideration for the purposes of section 21 (1) was thus the aggregate amount paid by the purchaser on completion.
21 What is the “dutiable value” of dutiable property?
(1) The dutiable value of dutiable property that is subject to a dutiable transaction is the greater of:
(a) the consideration (if any) for the dutiable transaction (being the amount of a monetary consideration or the value of a non-monetary consideration), and
(b) the unencumbered value of the dutiable property”
20 The Applicant in its written submissions noted the difference between the contract and the Ambiance contract in Ambiance in the following terms:
21 The Applicant’s written submissions after quoting section 8 of the Duties Act proceeded to deal with the Appeal Court decision in Royal & Sun in clause 4 as follows:
A significant difference between the Gould Management contract and the Ambiance contract is that the page 1 Gould Management contract price excludes GST whereas the Ambiance contract includes GST. In addition, the Gould Management $15,775 duty on the 10% GST component was paid separately to the duty on the GST exclusive $1,050,000 price
22 During the course of his oral argument Mr Cantelo demonstrated that his understanding of the Appeal Court decision in Royal & Sun is, and this is putting it kindly, imperfect. In particular and in relation to clause 22 of the Appeal Court judgment he said that the failure of Royal & Sun to advance an argument originally put by it in the court of first instance was an error of judgment, that in consequence of that error of judgment the appeal was decided against Royal & Sun, and that accordingly the judgment of Byrne J remained valid and good law. One possible reason for his imperfect comprehension of the Appeal Court judgment might arise from the manner in which he included that clause 22 of the judgment of Ormiston JA in his written submissions, and where he omitted a critical passage from the part cited. This can be seen from a comparison of clause 22 of the judgment as set out previously in this decision, (and in particular the words emphasised) with the relevant passage in the Applicant’s written submissions. Mr Cantelo did not appear to appreciate that the error of judgment to which the Victorian Appeal Court was referring was in fact the advancement of that argument in the court of first instance. Mr. Cantelo did not specifically refer to, but nor did he resile from his attack on the Respondent in the second-last paragraph of the written submissions; I refer here in particular to his reference to the Respondent’s “self-serving purpose” and his allegation as to “he purposely left out…” This was unfortunate, having regard both to the generous manner in which the Respondent treated his objection as being within time when it was not, and also to the manner in which he himself chose to reflect clause 22 of the Appeal Court judgment in Royal & Sun. Similarly Mr.Cantelo’s comprehension of the judgment in Roxborough was uncertain. He referred moreover to Commonwealth Quarries Footscray Pty Ltd v the Federal Commissioner of Taxation [1938] HCA 13 but its relevance in this context was not apparent to me.
Royal & Sun Alliance Court of Appeal
Comments from the Royal & Sun Alliance Court of Appeal clearly separate the two arguments discussed by Byrne J in the lower court trial
General issues of general and trade meaning of premium/gross premium—this was questioned by Royal & Sun Alliance in the Court of Appeal and is the substance of that appeal judgement
In paragraph 5, Ormiston J, in the Court of Appeal, said of Byrne J’s trial decision:
Royal and Sun Alliance lost this argument in both Byrne J’s trial and in the Court of Appeal
Gould Management is not advancing this argument here in the NSW ADT
In paragraph 23, Ormiston J said of Byrne J’s decision:
…the insurer's principal arguments as to the meaning of premium and gross premium were rejected not only on the basis of the proper interpretation of those expressions in the Act but on the alternative basis whereby it was contended that the words had a special or trade meaning in the insurance industry which would exclude the GST from the computation of either premiums or gross premiums…..
In paragraph 6, Ormiston J then went on to say:
…..the learned judge erred in finding that there was "no accepted industry meaning" of the words "premiums" and "gross premiums" in the insurance industry, so that it further contended that those words have had a "trade meaning" in the general insurance industry "being the amount received and retained by the insurer for its own benefit in consideration for undertaking insurance". In consequence it said that this trade meaning did not comprehend amounts "paid by the insured" in respect of taxes such as the GST for which the insurer was liable in respect of the transaction where those amounts were separately designated by the contract of insurance. The alternative contention of the insurer was that the expression "gross premiums" in the Act meant "the true actuarially established premiums for the risks being assumed by the insurer". If accepted, that likewise should lead to the conclusion that the expression did not include an amount paid by the insured in respect of taxes such as GST, where those amounts were separately designated by the contract
……the respondent insurer…………, sought to challenge the judge's findings as to the general and trade meaning of the relevant expressions in the Stamps Act
Separate designation of GST on renewal notices —Royal & Sun Alliance did not seek to support this reasoning in the Court of Appeal
It is necessary then to turn to the matters raised on the appeal
i.e. the general issues of the general and trade meaning of premium/gross premium—only
In paragraph 5, Ormiston J said of Byrne J’s decision:
The learned judge sought to apply two recent High Court cases and one Federal Court decision to justify the conclusion that the GST component of its income separately identified in the renewal notices was not part of the gross premiums received for the purposes of the calculation of stamp duty: see the judge's reasoning at para.[63] and Roxborough v Rothmans of Pall Mall Australia Ltd, Commissioner of State Revenue (Vic) v Royal Insurance Australia Ltd and Commissioner of Taxation v Century Yuasa Batteries Pty Ltd
The final basis for the respondent's arguments before his Honour was the only basis upon which the insurer was successful. It depended upon a view of the relevant documents that the insurer had charged a separate amount for GST
In paragraph 23, Ormiston J said:
…..on the hearing of this appeal, the respondent insurer did not seek to support the learned judge's reasoning on this issue
In paragraph 22, Ormiston J said of Byrne J’s decision:
………the independent argument based on the separate designation of premium and GST, as accepted by the trial judge, was effectively abandoned on appeal
The result is that:
Although the insurer in the present case was able to persuade the learned judge that these decisions (Commissioner of Taxation v. Century Yuasa Batteries Pty. Ltd and Roxborough v. Rothmans of Pall Mall Australia Ltd) were analogous and thus could be applied so as to sever the GST component from the balance of the premiums, it changed its stance in this Court and thought better of seeking to persuade us that that critical part of his Honour's reasoning, so far as the insurer was concerned, was correct and, ……………….. it did not seek to uphold the judgment below on that ground. I shall refrain from commenting on the propriety of those tactics and assume………….. that the advancing of the argument was a mere error of judgment
This means error of judgement on the part of Royal & Alliance in staying away from advancing that argument given that this Victorian Court of Appeal result, confining itself to the general issues of general and trade meaning of premium was that Royal and Sun Alliance lost
Particularly note that in paragraph 19 of the Chief Commissioner's 20 February 2004 Written Submission, the Chief Commissioner conveniently, to suit its own self-serving purpose, left out these bold words which, when correctly included, slant this passage from paragraph 22 of Ormiston J’s judgement the opposite way, into Gould Management's favour. Which is obviously why the Chief Commissioner purposely left out those bold words
Byrne J’s trial decision that duty was not attracted to the GST component on the insurance renewal notices with separately designated GST still stands. It’s soundness unquestioned by the Victorian Court of Appeal.
Quite to the contrary, the Court of Appeal says in very strong terms (error of judgment) that the Royal and Sun Alliance company, in the Court of Appeal, made an error in judgement in abandoning this argument. Which is a very strong statement from the Court of Appeal that the separate designation argument is correct.
23 It seems to me then that, in the light of the Appeal Court judgment in Royal & Sun, the position as regards the GST element in the purchase consideration has been resolved. A separate designation of the GST element makes no difference. Ambiance was incorrect to the extent that it suggests the possibility of anything different but, and as I have explained it was handed down at a time when the Royal & Sun judgment at first instance was thought to be good law, and even though there were doubts. Whether the price is inclusive or exclusive will make no difference; duty is payable on the consideration which moves the transaction.
24 In the circumstances the objection decision under review is affirmed.
0
5
2